The Coming Collapse of U.S. & World Conventional Paper Assets

The world is invested in the largest Ponzi scheme in history.   According to the CityUK Fund most recent report, the total U.S. and world conventional assets under management are forecasted to reach $94.1 trillion in 2013

This is up from $87.2 trillion in 2012.  These global conventional assets are broken down into the following investment classes shown in the chart below:

Global Conventional Assets 2012

Here we can see that the world has $26.5 trillion invested in mutual funds, $26.8 trillion in insurance funds and $33.9 trillion in pension funds.  Total global conventional assets under management grew 9.5% in 2012 compared to 2011 and are forecasted to grow an additional 8% in 2013.

Of course the majority of the gains in these global assets are due to the massive amount of monetary printing by the Fed & Central Banks.  The world believes it’s a lot richer only because the digits in these accounts have increased.  However, as I have mentioned before these assets are really not assets at all, but rather liabilities I label as “Energy IOU’s.”

Furthermore, if we take a look at the asset allocation of the larger group, the Pension Plans, we can see why the central banks have resorted to the largest coordinated monetary printing scheme in history:

Global Pension Study 2013

According to the Towers Watson 2013 Global Pension Plan study, the majority of the world’s pension funds were invested in equities & bonds.  A good portion of the other category (in grey) was invested in the real estate market.

So, the majority of global pension funds are allocated in equities, bonds and real estate.  Isn’t that amazing that these three investment classes have shown some of the highest rates of returns in the past several years?

Furthermore, the majority of global mutual funds are invested in equities & bonds and the overwhelming percentage of the largest insurance companies in the world have their assets allocated in real estate.

In a recent article by Brighton House Associates:

Real estate, an asset class that has traditional been a mainstay of insurance company portfolios due to its relatively steady, predictable returns and tangible nature, represents 60% of the asset allocation mix of large insurers.

It’s no wonder that the central bank’s monetary inflation has been siphoned into these assets rather than the precious metals.  I have republished the two charts below from one of my previous articles to show just how little currency is flowing into the precious metals than the typical conventional assets.

Global Gold Investment

Global Silver Investment 2007-2012

In 2012, world gold investment was $234 billion and silver was $7.9 billion for grand total of $242 billion.  In contrast, total investment in global conventional assets under management grew to $7.5 trillion the same year (2011 – $79.7 trillion to 2012 $87.2 trillion).  Thus, total gold & silver investment in 2012 was only 3.2% of these global convention assets.

Why Global Conventional Assets are a Ponzi Scheme

The reason why these global convention assets are the largest Ponzi scheme in history is due to the ability to liquidate these assets in a short period of time.  If everyone in the world who was invested in these assets wanted to cash them in for currency today, there would not be enough equity value or currency for the massive claims.

Furthermore, the redemption or massive liquidation of these conventional assets would certainly drive their asset values to a fraction of where they stand today.  Of course this would not occur, because these assets are set up to be liquidated by a small amount on an annual basis for the investors-retirees.

The real problem for these conventional assets in the future will be the peaking of global oil production.  These assets derive their value from a growing economy which occurs due to a growing energy supply.  Once the energy supply peaks and declines, it will put severe stress on the $trillions of conventional paper assets.

The reason why gold and silver are much safer assets to own than pension plans, insurance funds or mutual funds is due to the “Economic Energy” store of value they contain.  Once an individual purchases an ounce of gold or silver, held in one’s possession, the individual contains the highest quality of this stored “Economic Energy” that can be readily traded for economic energy in the form of goods and services.

Unfortunately, conventional assets do not contain economic energy, rather they are paper versions of “Economic Energy IOU’s” that need to be liquidated, exchanged for fiat currency (another debt based Energy IOU) than traded for goods or services.

The peak and decline of world oil production (forecasted to occur soon by some in the oil industry) will put a huge strain on the already weak global economy.  As the global economy disintegrates, we will see a collapse in the values of these conventional assets.  Investors wise enough to see this coming will transition out of pension plans, insurance-mutual funds and into physical assets such as the precious metal to protect their wealth.

Because the world only invested 3.2% of its currency in gold & silver in 2012 compared to conventional assets, any significant move into the precious metals will push their values up to levels never imagined.

There are many important aspects of the energy supply equation that will be addressed at the SRSrocco Report in the future.  The more investors understand these energy details, the more they will understand why it’s wise to switch out of paper assets and into physical ones such as the precious metals.

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32 Comments on "The Coming Collapse of U.S. & World Conventional Paper Assets"

  1. Steve, another salient piece. Thank you for the charts. Scary.

    Another clue of the coming collapse that seems to pass beneath the radar, is the auction sector.

    The so-called “smart money” is bailing out of fiat cash and paper assets backed by fiat cash, as fast as they can. One only has to go on the web and look at auctions held around the globe. Especially high value tangible assets such as art, jewels, antiques, gold, silver, land, especially farmland.

    The prices paid for these high value tangible assets has risen to heights that are historical. Proving the point that fiat price does not matter and that the value of fiat paper is diminishing at an ever increasing pace.

    Gold and silver miners looking to cut costs to the bone, to preserve ever diminishing margins, have kept the heavy equipment auctions busy. Since there is limited cash flow to purchase new equipment, rather than good used heavy equipment bought at auction.

    I have this sense of foreboding about the macro state of the globes financial/politico sphere and a “gut feeling” that we are close to a resolution. “The begining of the end? Or the end of the begining?”
    – WSC

    • OutlookingIn,

      Yeah, GoldCorp just released their Q3 report and they only had $5 million in net income. However, their adjusted earnings (the figure I focus on) was $190 million compared to $117 million in Q2 2013. The increase in adjusted earnings was due to higher revenue from selling 34,300 oz more of gold in Q3 than Q2 even though their metal price realized declined $19 an oz compared to the previous quarter.

      Furthermore, production costs increased from $518 million Q2 to $532 million Q3. In addition, GoldCorp spent $235 million on capital expenditures for its commercial producing mines. Even though they took $163 million as an expense for Depreciation & Depletion in Q3 2013, they spent more money on their mines than stated in their D, D & A.

      Lastly, Goldcorp only spent $9 million on exploration and evaluation costs, so their adjusted revenue didn’t even cover the capex ($235 million) they spent that quarter on their mining properties.

      It’s expensive to mine gold nowadays.

      steve

  2. I’m surprised more are not talking about GOLD now being recognized as a asset to be held on the bank books. You can read all about on the Fed site today and on the FDIC site. So all this time they papered down the price while stealing the physical out the back door. Comx,GLD,LONDON ETC.

  3. steve, since you didn’t reply to me in the other thread, i’m reposting it here.

    i’m just trying to get things as clear as possible.

    currently,

    value of annual gold production is roughly 100 billion dollars
    value of annual copper production is roughly 140 billion dollars
    value of annual zinc production is roughly 24 billion dollars
    value of annual lead production is roughly 20 billion dollars

    value of annual silver production is roughly 18 billion dollars.

    so, copper, zinc-lead producers count silver production as by-product because silver makes up a small fraction of their revenue.

    but as you and i, silverbugs, know, silver will go up many times vs these base metals and vs energy.

    in the future, even these base metal producers will see their silver revenue go up dramatically. they might as well become primary silver producers when their silver revenue comes closer to, or more than 50%.

    so, your argument that as energy becomes more scarce/expensive, the base metal producers will decrease their output thus leaving a lot of silver in the ground forever is not very convincing.

    you need to prove your point in more accurate fashion, like projecting price ratios between base metal and energy, silver and energy, base metal and silver.

    some base metal producers with very marginal silver byproducts will indeed suffer more. so your analysis has to take into account base metals producers with varying proportions of silver revenue will be affected differently.

    the other more important part is the declining ore grade which you talk about a lot. you pointed out when ore grades declines, energy consumption grows exponentially. is there a very accurate modelling of this available somewhere so that someone can accurately project at what ore grade and silver/oil ratio, it won’t make economic sense to mine silver any more.

    currently, a lot miners claim they make money but in fact stays cashflow negative forever. they stay afloat because the current fiat money ponzi scheme feed them ever increasing debt. but when the sound money system is restored, cashflow negative ventures can’t stay alive for very long.

    so projecting the future silver production is a very messy and difficult task.

    i have problems with your argument because logically your argument fails to mention counter balancing force of the sure-to-rise silver/oil ratio.

    but we’re dealing with a very numerical problem here, so a more accurate modelling is definitely needed to project how much silver will indeed be left in the ground forever.

    i’m even more bullish on silver than you. so i’d be the happiest one to hear the good news that can convince me.

    • There is another part to the return to sound money world which is rarely mentioned. Once the fiat money world goes under, most of our current economic behavior goes under with it. There cannot be a consumption-based society living in a world of sound money. Think about the implications — less of everything. Less stuff of all kind because most people will not be able to afford them. Most people, especially in the West, live on credit generated by the fiat world. This is a counter-balancing force that will keep the ratios of, say silver to oil, in check in a sound money world. A lot of silver can and will remain in the ground, however, a lot less of it will be actually needed above ground. A lot of eager silver bulls tend to forget to account for counter-forces such as this one. Again, this doesn’t mean that the price of silver won’t go up, it just means that it won’t go up till infinity.

      • Anon,

        I was one that never thought that the price or value would go up to infinity. Furthermore, you are correct that once the fiat monetary system collapses, economic activity will collapse as well. The only reason why I believe the value of gold and silver will increase is due to the 99% trying to get into them to protect some wealth. Hell you only need a 1-3% of that 99% trying to get into physical gold and silver to push their values up considerably.

        Even though I agree that in a sound monetary system gold-silver & oil will balance, it still does not factor in the massive miscalculation of funds by the 99%.

        Again, the majority of the world has invested its currency in Digits that provide a yield and return upon retirement or etc. That whole system will implode forcing those who want to have some sort of retirement fund, to store away gold and silver. Basically, your retirement will be how many ounces of the precious metals you have put away to be used in the future as money.

        This is another reason why their values will increase. Hardly anyone is storing the precious metals as retirement in this fashion.

        steve

        • Exactly. Storing metals for much later use. That’s what I’m doing. In the meantime, of course, there’s time for speculation, too, as I believe that before peak energy sets in, we will have to adapt to a de-americanized or de-dollarized world.

      • We seem to be talking from out of a fishbowl here. All does not revolve around Western Finance. Yes it will be expensive for most here,but the East is rising. They desire homes,toasters,solar panels,cars,washing machines etc. Just like we did after WWII. This is why China has been on a tare buying up resources from around the world.They have 50 cities like Manhattan. They have already hedged their position against the USD.

        • The problem is all the economies of the world are now tied together. All of the economies are using Fiat currency and all are debasing their currencies to make their exports more appealing for trade. This is the first time in World History this has occured. The whole financial system is a house of cards. Pull a card from the bottom and it all collapses. The US is that bottom card.

          The US is still responsible for most imports. If the US collapses who will buy all those iPads and iPhones, computers, HDTVs? Chinese factories will grind to a halt. Most of the Chinese population can’t afford the products it makes because of cheap labor.

          China is also pumping lots of liquidity into it’s own financial system and are very worried about inflation which they are trying to get a handle on.

          So it is quite possible that the entire worlds financial system could collapse if the US economy collapses.

          • @Rodster — The argument that American consumption makes the world go round is one that I hear a lot, even though it’s completely bogus. Consumption is a given. Everyone on this planet who is capable of making concise decisions wants to consume more stuff. That’s not something specifically reserved for the American culture or mentality. Don’t you think guys in Burma or Nigeria want more and better food, cars, homes, etc.? Of course they do, everyone does. The problem is with production and the limits of resources to achieve a level of global consumption which would be on par with American consumption. Remember this, what the US gives to the rest of the world in exchange for all the stuff it imports is fiat money, i.e. cash, digits and treasuries. The US is exporting its inflation to the rest of the world and receives a whole lot of free stuff in the meantime. Once the US is not allowed to this privilege, i.e. when the dollar loses its global reserve currency status, the rest of the world will gladly consume whatever the US won’t be able to. And then inflation will hit the US hard because all that cash, digits and treasuries will come back home, simply because they will be useless anywhere else. Even if the US would default on its obligations, inflation will still hit, because there won’t be enough stuff to go around for the base money and internal credit already created. So, in conclusion, consumption is never a problem. Everyone likes to consume. Production is a problem because it involves hard work.

            @Rocco — I am not sure about the theory that all commodity prices will rise once people invested in paper and digital money see the light. The absolute majority of these people will lose ALL their purchasing power. There won’t be an exit for them. Already today there’s not enough gold, silver and oil to go around. The smart money is divesting dollars and paper instruments for years, although the Lehman collapse accelerated the trend. My personal opinion is that very soon there will be a weekend conference, something like Bretton Woods but much shorter and more secretive. And then on Monday when the banks and markets open, the world will already be a different place. There will be a new monetary system probably made up of the currencies of the 7 or 8 most productive countries in the world and 20% physical gold. So the dollar will lose its ultimate power and will retain maybe a 15-20% ratio. And that will be enough to kill almost all investors. Those who bought physical gold and silver beforehand when it was available will make a killing. The rest of the population won’t know the difference because their debt and credit balances will be simply rolled over into the next system. Business will continue as usual.

          • @Anon

            Sure I understand all of that but in order for the rest of the world to replace what America consumes, wages need to be high enough for them to purchase those items. In China factory workers can’t afford the iPads and iPhones they make for American consumers.

            Europe is an utter disaster and most of it is in Depression. Socialism has ensured that their economies are relatively flatlined or at best marginal growth in the 1-2% and that’s if they are not fudging the numbers like we do here in the US.

            As most of us including yourself knows that the American consumer buys on impulse and with debt. That’s why we buy sooooo many HDTVs, computers and other consumer goods. If we couldn’t borrow the money most would do without which in turn would stall our economy. That’s why the American public is encouraged to buy, buy, buy.

            No other Nation on the planet matches the consumption that the US does, collectively yes but not singular nations. If the US Economy goes bye bye, it shakes the confidence of world markets and their economies go into a tail spin. So who and where does China dump it’s goods? They are under massive pressure to keep their factories churning.

            I hope your right but I get a bad feeling that if we collapse the world wont just go happily along as if we didn’t exist.

    • Judejin,

      I agree with you that forecasting future supply & demand forces will become increasingly worthless in a peak energy environment. All we can so is give common sense assumptions that may occur. However, black swan events can even make these common sense assumptions invalid.

      That being said, I still believe physical gold and silver will be some of the safest assets to own going forward compared to most other typical paper assets.

      Judejin… you are looking at the values of the metals in annual production and not the overall supply-demand issue during peak oil. As I have stated in several articles, I believe a portion of the oil that is now being extracted (shale for instance) is not really affordable. It has been affordable due to the massive amount of monetary printing and stimulus.

      Thus, the world’s economies are still moving along, howbeit at a slower pace, but only because the whole damn thing is being back stopped by the central banks. Once the fiat monetary system collapses, its LESS OIL PRODUCTION, not more.

      The Shale Energy Industry could not have survived as long as it has if it wasn’t for Wall Street Financial and Deals. Shale Gas is a commercial failure and many of the companies should have already gone bankrupt… much like the large banks.

      As energy production peaks, there will be a huge DE-LEVERAGING and economic activity will collapse. I don’t know when this will occur, but it’s getting closer.

      So, the base metal miners are not going to mine copper if prices fall because silver has risen 3-4 times its value. It still doesn’t make commercial sense because many copper miners only produce a fraction of their total production in silver.

      This is why I disagree with you that it won’t make sense for the base metal miners to ramp up production just because their silver revenue increases a bit.

      However, I do see the primary silver mining industry KICK UP at this point in time because they uses much less fuel than the base metal miners.

      steve

      • What if silver goes up 30-40 times or more,as the new gold? As the whole world recogniZe it as sound money as you suggest.

        Will the base metals miners become primary silver miners too?

        The total collapse/chaos period won’t last forever. After the world resets to gold/silver money regime,everything will be repriced accordingly.
        My guess is silver will become so valuable that copper/lead/zinc will become true byproducts.
        So it really all depends on the silver/oil,silver/base metal ratio in the after world.

        Since we’re not so sure about it. We have to come up with different scenarios. In my scenario, silver will be mined because it is money,the new gold.

        • @judejin — Even if silver goes up to the fantasy-land levels you just mentioned (30-40x today’s price) it will be a mania peak and prices will moderate, so even then it won’t be commercially viable to start up silver mining.

          On another note, the market will never allow a specific product (in this case silver) to become infinitely valuable. Market participants will substitute silver, come up with other products that don’t need that much silver, etc.

          The price of gold is a whole different story. If the world political powers determine that it will serve their purposes to fix its price at 1 million dollars per ounce then that will be its price and all ratios will reset.

          The current situation of the world (so called economic crisis) is really a behavioral phenomenon. In many places people became used to not producing and exchanging valueless credit notes for real stuff that took some hard work to produce. The next stage or system will squeeze these people back into production mode. But it won’t be easy, being lazy is a bitch… 🙂 Probably that’s why the US government bought all those bullets a few years ago.

          • do you have even have a vague idea how much silver will be needed just for monetary purpose? i guess you don’t.

            100 years ago, the world used 10 billion ounces of silver for money.

            the adjusting process will be long and fluctuating. but once ppl recognize silver as a valuable hard currency. it will be mined and the base metals will become the true byproducts.

            in the current fiat money regime, everything is upside-down. basemetal miners proudly claim that they produce silver as a byproduct. but in the future, they’ll say they produce zinc/lead as a byproduct.

          • you’re contradicting yourself. in one line you’re sayin the world won’t allow a specific product to be extremely valuable.
            on the other, you’re saying the govt can fix gold to 1 million dollars.

            so, after reading all the stuff in gold/silver community, you’re still convinced that the govts can dictate everything or distort everything.

            if the govt fixes gold to 1 million, guess what, silver will be 100k at the minimum!

  4. Another line of reasoning going around (Peter Schiff, Faber etc….) is that if one just diversifies into paper outside of dollars and keep gold in a vault outside the US, this will all blow over. It’s like they predict a partial collapse, however still imagine themselves flying around, working the phone, surfing the net.

    Even super physical guy Andy HOffman recommends keeping gold in a FOREIGN vault. Presumably Andy will still be able to speed-dial his vault guy in a DIFFERENT country who can then promptly Fedex him some loot. No vault confiscation, no border problems, no capital controls, no highway bandits, no problems getting diesel fuel. Or does he not plan to actually take delivery but rather get a PAPER certificate? (I don’t know).

    In other words, so many commentators warn of financial collapse but much of their strategy assumes no ensuing commercial collapse. For example, essentially all cargo is shipped around the world by interbank transfers of currency prior to boat actually moving. So how does this continue flawlessly when much of the bank ‘assets’ and currencies become worthless?

    • I would keep my gold and my SELF outside of the US. Believe me nobody will be allowed to visit their foreign vaults once the SHTF. At least not for a substantial while.

    • the cargo will move around the world just as it did when the boats had sails on them and no transatlantic telegraph. it will be with modern boats and maybe letters of credit against other cargos or some such. verification codes by radio, whatever, man will develop something just as they did before modern comms and electronic banking existed. there was still worldwide trade. settled in swaps or gold &silver in the end. it won’t be pretty as it gets going but commerce will continue.

      • I agree with that. Nonetheless, globalization is based on the cost of transport being negligible. Very soon, in a world where bunker fuel will cost more than the profits made by shifting jobs to distant slave-labor, globalization will collapse. If at all possible, it would be nice to see human labor make a come-back, perhaps starting in the agricultural sector. If a companies like Wal-mart want to survive, they’ll have to get a clue and start stocking the shelves with items from the local area, not a bunch of plastic halloween pumpkins shipped from the other side of the globe.

  5. It’s Governments that are failing not the people. They are the ones that come and go. Along with their paper fiat. Gold is always the last thing standing in these countries. Gold will once again balance the bankers books. Using the same math applied in the 70’s to arrive at the 1980 gold top gives you a price north of $13,000. Any wonder it is now a Tier 1 asset listed by the Fed & FDIC ?

  6. Steve, great article. Although I completely understand the argument for paper assets as a giant Ponzi scheme, I’m not sure I would lump real estate in there 100%. Yes, price inflation is occurring as hot money pours into the market in search of tangible assets thanks to the central banks. But at the end of the day when the paper markets finally implode, those holding clear title to property will at least have something they can live in, rent out or farm on, even if they overpaid. Interesting about insurance companies being 60% invested in real estate. Maybe once they all run the price of property into the stratosphere, regular people will start buying precious metals because that’s all they can afford.

    BTW, love the way you connect everything to diminishing cheap oil, as it’s a critical connection most people don’t understand.

    OutLookingIn, excellent observation about the art world. Despite Dan Loeb’s recent handwaving, Sotheby’s has had some excellent results at auction this year with many record-breaking numbers for individual pieces. A colleague of mine attended the recent auction in Hong Kong where they auctioned off a diamond the size of a small bird egg for a record $30 million. My colleague, a very successful mainstream real estate broker, wondered allowed to her translator (proceedings were in Mandarin) why anyone would pay so much for such a small item. Her translator said, because you can put it in your pocket and leave the country with it. My colleague had never considered this angle and later commented to me that she was glad we didn’t have to live like that (cue polite smile and nod).

    Another interesting thing about this piece was the anonymity around it. Sotheby’s will often maximize the value of an object by telling its incredible story (owned by royalty, saved a kingdom, etc). But this piece quietly came to market with no story whatsoever. It was simply authenticated, media hyped, then sold to an unknown, private phone bidder, where it will probably disappear for generations as an incredibly concentrated store of value.

    The epic paper Ponzi we live in truly is a game of musical chairs. When it all collapses, hopefully you’ll have a nice chair to sit in and at least a few tangible, valued items to trade.

    • Diane,

      I am on the road now. Thanks for your comment and I would like to reply later this evening on the subject of real estate.

      Steve

      • Diane,

        It is true that Real Estate (depending on type and location) will at least hold some value compared to the majority of paper assets. However, peak oil will kill economic activity and it will destroy a great deal of the presumed wealth in real estate. Sure, some real estate will do better than others, but the EROI – Energy Returned on Invested for Suburban Residential Real Estate is huge net loser.

        By that, I mean it takes so much more energy inputs to build, maintain and sustain the suburban residential system than you get out of it… its not even funny.

        Modest 2-3 bedroom homes in the country or next to ranch or farmlands will hold their value better than the bigger homes in subdivisions near large cities.

        Lastly, a very modest owner-built home (with indigenous or local products) on a few acres has a much higher EROI than its suburban counterpart. Basically, a very modest simple home in the country where the inhabitants grow most of their food has a much higher EROI than the family trying to survive in the disaster called the SUBURBAN DREAM.

        The only reason why the Suburban Subdivision Real Estate system has survived is due to the relatively high EROI of oil & gas for the past 80-100 years. Now that the EROI of oil & gas is falling considerably over the past few decades, this is causing severe stress in this unsustainable living arrangement.

        steve

  7. So let me get this right. There are minuscule energy available to support the total claim of global investment asset (bonds, equity, and real estate). Once the peak energy set in, the pressure of EROI will be even more greater, close to the breaking point. The EROI will eventually drop like a cliff, further and further with the diminishing energy trend.

    What about PM mining shares? Isn’t it Energy UOI. So that would be okay. Right?

    • Joe,

      Peak energy will impact the mining industry sooner or later. Basically we are going to see a peak in metal production. Furthermore, any black swan events can mess things up faster than peak energy.

      However, I believe the silver miners will do the best as they use the least amount of energy to remove an ounce of silver compared to their base metal counterparts.

      steve

  8. @Rodster — The US consumes so extremely much not because of high wages but because the producers of the world need dollars as reserves. The Chinese could easily sell their stuff produced by Chinese companies to Chinese workers for prices the Chinese workers could afford. However, China needs dollars for its international business, i.e. buying gold, oil, etc… Still, in the years after Lehman, confidence in the dollar has been profoundly shaken and all producers are now divesting dollars in an accelerated fashion. Once a tipping point is reached, for example the Saudis decide that now that the Chinese are their largest oil consumers, they don’t need to sell oil exclusively in dollars, well then the US will face massive problems. Because the value of the dollar will fall and no matter how high wages the US consumer will earn, they will be useless to buy foreign goods. Get it?

  9. @judejin — I am not contradicting myself. By the world I mean markets. Markets will never allow silver or anything else to become infinitely valuable. You may wish so, but that will not change the course of history.

    Yes, gold can and will be revalued. That’s why gold is kept in central banks for reserve purposes. How else could debt problems be remedied? I am not saying that I agree with such a solution or that it will be possible to uphold that solution forever. The monetary system changes all the time, usually every second or third generation, so really it’s nonsensical to be looking for a system that will last forever. The world doesn’t work that way.

    Btw, how much would an iphone cost at $100k silver. That’s hyperinflation. It might happen in the US but at the same time in Europe the price of silver will still be somewhere around 200 euros and the EURUSD will be 500.

  10. Diane, I like to add to steve’s reply. Real estate is not bad to own but depend on where it is -location location location. Real estate is a liability if it doesn’t produce income. Real estate has 3rd party risk like property tax and vandalism. If property tax isn’t paid due to lack of fund or dispute with the city, one would find out WHO really own that piece of real estate regardless who’s name on the title.

    Steve, it is true energy runs everything. That’s why TPTB tie their dollar to petroleum, not gold, bacon, wheat or diamond. Everything is dependent on oil, therefore, TPTB knows everything will dependent on the USD until someone invented free energy. Rumor has that TPTB is suppressing or bought off anything that’s better than fossil fuel.

    • Fairguy, thanks for your reply. You bring up a good point that location is key. I mean, really, look what you can get for $25K in Detroit, but would you even want to try managing that as a landlord?

      Steve, thanks for your reply as well. I believe that a bit of productive farmland with a modest, energy-efficient home no more than a day’s ride by horseback to a small, friendly town will be one of the better long-term real estate choices available for individuals in a world of diminishing cheap energy.

      What a great conversation, thanks to all!

  11. Posted this at my site.
    Great stuff as usual, & good to see you at TFMR.

  12. no worry guys, the collapse, etc won’t happen in your lifetime, if it ever happens 🙂

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